May 27, 2009

A recent article in the Houston chronicle highlights recent trends indicating that demand for power is way down, both due to the economic trouble we are experiencing, as well as a change in consumer behavior. This could mean that the decline in electricity demand is a long-term phenomenon.

While the article suggests that this situation urges caution for renewable energy development, in South Carolina where there is little RE development going on anyway, it spells caution for building new coal plants. Instead, why not take advantage of the now cheap natural gas detailed in the article, as well as energy efficiency measures, which are cost-savers even in a bear market?

Power usage is down steeply across the country in the first three months of 2009 compared with 2008, due in part to the economic downturn and possibly a change in consumer behavior, said George Given, the head of power market research with the energy consulting firm. The demand lag is expected to continue into next year before starting a very slow recovery....

Many power companies have seen large drops in electricity use. Houston’s CenterPoint Energy reported a nearly 10 percent drop in residential consumption in the first three months of the year from the same quarter last year.

Given said some of the decrease is linked to the downturn in the economy, but the drops are much deeper than the drop in gross domestic product alone can explain. It might reflect a fundamental shift in power usage by consumers in reaction to higher prices in 2007 and 2008.

Reserve margins — the difference between how much power capacity is available and the peak demand — have continued to climb as demand has slowed. In Texas, the main grid operator tries to keep the reserve margin about 12.5 percent, but it’s currently more than 25 percent and expected to reach more than 30 percent next year.

The steep downturn in the power industry is also dragging down the natural gas market, said Jen Snyder, an analyst for Wood Mackenzie.

The problem is compounded by a recent surge in natural gas production in the U.S. — government data released Thursday says stockpiles rose by 103 billion cubic feet, well above analyst expectations, and 22.4 percent above the five-year average. Also, a wave of new liquefied natural gas capacity coming online overseas is oversupplying Europe and Asia.

Many natural gas production companies have pulled drilling rigs out of production in an effort to stop the price slide, but Snyder said only a rebound in demand will bring natural gas prices back up. She expects a modest improvement in the economy in 2010, but gas demand won’t recover until 2012.

Natural gas slid 36.7 cents to $3.603 per million British thermal units Thursday while crude oil fell 99 cents to $61.05 a barrel in New York trading.